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Tuesday, Feb 07, 2023

Tesla's China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai, China

Tesla slashes prices globally by as much as 20 percent

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Tesla has slashed prices globally on its electric vehicles by as much as 20 percent, extending an aggressive discounting strategy and challenging rivals after missing Wall Street delivery estimates for 2022.

The move was announced after CEO Elon Musk warned that the prospect of a recession and higher interest rates meant the company could lower prices to sustain volume growth at the expense of profit.

Tesla shares were down 3.6 percent on Friday.

Musk acknowledged last year that prices had become “embarrassingly high” and could hurt demand.

The lower pricing across the United States, Europe, the Middle East and Africa following a series of cuts last week in Asia marked a reversal from the strategy the carmaker had pursued through much of 2021 and 2022 when new vehicle orders exceeded supply.

“Competition is coming and they are responding with price cuts,” said Thomas Hayes, chairman and managing member at Great Hill Capital.

The cuts may make electric cars affordable to people who may have been previously priced out of the market especially as buyers in the US and France will be eligible for certain government tax credits.

The US price cuts on its global top-sellers, the Model 3 sedan and Model Y crossover SUV, were between 6 percent and 20 percent, Reuters calculations showed, with the basic Model Y now costing $52,990, down from $65,990.

Tesla also cut prices on its Model X luxury crossover SUV and Model S sedan in the US.

For a US buyer of the long-range Model Y, the new Tesla price combined with the US subsidy amounts to a discount of 31 percent. In addition, the move broadened the vehicles in Tesla’s line-up eligible for a US federal tax credit of up to $7,500, which took effect on January 1.

Before the price cut, the five-seat version of the Model Y had been ineligible, which Musk called “messed-up”. After the price cut, the long-range version of the Model Y will qualify.

In France, customers buying the Model 3 for 44,990 euros ($48,570) will now get a further reduction through a government subsidy of 5,000 euros ($5,400) on an electric vehicle scheme with a threshold of 47,000 euros ($50,8580).

In Germany, it lopped from about 1 percent to almost 17 percent off prices on the Model 3 and the Model Y. The best-selling Model Y will now go for 44,890 euros ($48,499), down by 9,100 euros ($9,850). A reduction in cost inflation was also a factor in reducing prices in its top European market, a spokesperson for Tesla Germany said without specifying which costs had fallen.

It also reduced prices in Austria, Switzerland and France.



‘Shot across bow’

Shares fell as investors worried the move might erode bumper margins that the company had been earning, particularly as competition intensified, even if it were to boost sales volumes.

Wedbush analyst Dan Ives said the move could boost global deliveries by 12 to 15 percent this year and shows Musk is on the offensive.

“This is a clear shot across the bow at European automakers and US stalwarts [GM and Ford] that Tesla is not going to play nice in the sandbox with an EV price war now under way,” Ives said in a research note.

“Margins will get hit on this, but we like this strategic poker move by Musk and Tesla,” he wrote.

US carmakers General Motors Co and Ford Motor Co fell 4.9 percent and 6.1 percent, respectively, making them among the biggest losers on the broad-market S&P 500 Index, while in Europe, Stellantis NV fell 3.9 percent and Volkswagen AG dropped 2.8 percent.



‘Punch in the gut’

Tesla fans and customers complained the price cuts disadvantaged those who had recently bought a vehicle, leaving them with a lower second-hand value.

Greg Woodfill in Seattle, who bought a Model Y in December, had considered waiting until this year to get the US subsidy but was lured by a discount at the time of $3,750.

“It’s a punch in the gut, to be honest,” he told Reuters on Friday, adding that it feels unfair for Tesla to seek to boost its fourth-quarter sales with discounts, only to cut prices a month later.

“If they knew they would drop the price this much, they should have just done it in December,” he said.

In China, where Tesla cut prices last week by 6 to 13.5 percent, owners protested at delivery centres, calling for compensation.

For 2021, the US and China combined had accounted for about 75 percent of Tesla sales, but Europe’s sales share has been growing.

Tesla cut prices in China and other Asian markets last week, which analysts had said would boost demand and increase pressure on rivals, including BYD, to follow suit in what could become a price war in the largest single electric car market.

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